Capitalization

The first plenary session of this Grantmakers in The Arts’ conference focused on the National Capitalization Project, a GIA initiative launched this past January. It was premised on the plain truth that arts organizations are often under-capitalized. A task force of funders and experts studied the literature, agreed on terms, and has just now published a “National Capitalization Project 2010 Summary,” summing up its findings. They are foregrounded in an extensive “Literature Review on Capitalization” issued last spring, (Both documents can be downloaded from this page.)

Especially in the stormy economic weather that has come to be the new normal, I wish there were enough funding available to accomplish the overarching goal of this project, giving every arts organization a rainy day fund to draw against for emergencies and temporary shortfalls.

If there were an adequate and steady funding supply, many of the observations and recommendations are logical and sound: make larger grants and multi-year grants to enable organizations to build up operating surpluses that can be held in reserve for emergencies or special expenditures. Provide general operating support instead of project grants that tend to create “mission drift,” as groups seek to satisfy funders’ aims instead of their own. Rather than seeking break-even budgets, let the existence of a surplus count on the positive side when making grants; don’t conclude that groups that have built up a cushion don’t need funding. Don’t just make grants: consider loans, program-related investments, and other initiatives that add to organizational capital.

But in this actual existing funding climate, reading between the report’s lines makes me nervous, for several reasons. First, like almost all such studies, there’s no real differentiation between the needs and realities of major, well-funded institutions and the types of organizations I care most about, those rooted in communities under pressure, or responsive to the desire for social justice, or living at the frontiers of creative risk—often, all three. They tend to be limited in both earning capacity and the ability to attract major donors, who may not share their values.

Those differences are not just in scale and kind, but in access. Among the ideas put forward is joint funding, with several foundations working in concert to improve the capital position of a particular organization. To gain entree to that highest rung of funding, an organization needs years of support, cultivation, and comfort with multiple foundations. With a finite pool of funding, larger, collective support for one group means less for others—and as the world turns, chiefly for others who lack that entree to funders’ comfort zones.

Although the National Capitalization Project reports don’t use the word “triage,” they may as well have. That discussion turns on “oversupply,” summed up in this hypothesis:

[T]hat there is an oversupply of product in some marketplaces, and that current funding practices do not address this issue;

“Oversupply” is a concept easier to entertain in the abstract. There was no Q&A during this session, so I didn’t raise my hand to ask for an example of an organization that is part of the oversupply and needs to shrink or disappear. But I’m a hundred percent sure that if I did, no one would have been willing to name names. So the conversation about who needs to accept that they are outpacing funding and demand, as opposed to who needs another grant to improve their marketing, outreach, and other capacities—that conversation is going to take place behind closed doors, and the answers are not going to be subject to democratic debate.

A culture is vibrant and generative to the extent that there are multiple types of arts activity by individuals, small groups, organizations, and institutions of many scales—and if I can permitted a generalization that unquestionably has exceptions, those that might score lowest on the capitalization scale often add the most new energy to the creativity scale. I found one sentence in the literature review that alluded to this: “For some smaller arts organizations, it may be acceptable to live at the edges of sustainability given their artistic goals.”

I also feel the pinch of cognitive dissonance when reports like this talk about “financial sustainability.” Our current economic situation is singularly fluid and unstable: so much so, that one of the chief findings of IBM’s 2010 CEO study, Capitalizing on Complexity, was that “Most CEOs seriously doubt their ability to cope with rapidly escalating complexity.” Scanning the business sector, every day shows us failures in sustaining organizations that are focused on capitalization and financial stability at a scale and with an intensity few nonprofits can match. Stuff happens. We plan, and God laughs.

For instance, both reports are peppered with references to endowment funding as an important component of sustainability (they also acknowledge that feeding an endowment can sink an organization that is otherwise under stress). But given recent interest rates, there is no guarantee that endowments will return income. The future is impossible to predict, but consider the recent past. Check out what the Chronicle on Philanthropy has to say about FY 2009 arts and culture endowment performances: you’ll see a forest of losses, not gains.

I’m not sure why parking money where it is just as likely to earn next to nothing (or lose value) feels like a better use of foundation funds right now than supporting some of the amazing groups that are financially marginal for reasons not of their own making. I see groups that are forced to cut programs, lay off essential staff. Shouldn’t the discussion of capitalization at least acknowledge this?

No question about it: organizations that have more money in the bank will get through lean times and crises better than those that don’t. I can see how this approach works wonderfully for the group that gets capitalized. But is triage funding the most important thing to be doing right now for the sector as a whole? I guess it depends on your primary values, whether strengthening a well-funded segment of the field is more important than investing in what has been marginalized by other market and political forces. If your truth lives behind door number one, how do you feel about the vision of triage that lies beyond door number two?

A literature review is always going to skew toward older material, as it’s necessary to take a long view. But what I really missed was an up-to-the-minute discussion of current economic realities and the particular pressures they place on artists and organizations that weren’t able to amass building funds or endowments before the storm hit, and a discussion of how large a grain of salt we should provide to accompany any sort of certainty that we actually know how to create financial sustainability in these times.

Most of all, the thing I wish would emerge from this conversation is a commitment to enlarging the pool of funds so it is adequate for everyone doing important work. To engage that conversation, we’d have to talk about things that don’t usually get on the agendas of arts conferences, such as the distorted national priorities that have had us spending, for the last decade, more than two annual National Endowment for the Arts’ budgets each day, seven days a week, on war. The collective voice of a group like this one telling that truth would resound, I think. And if it was sustained until the balance shifted, the capitalization conversation would be a whole different story.

For your edification, Lena Horne, “Stormy Weather,” from the 1943 film of the same name.

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3 Responses to Capitalization

  1. Pingback: Do You Deserve To Exist? | Hoong Yee Lee Krakauer

  2. Joan Sutherland says:

    A few years ago I made a graph for an arts website. It described the “arts cycle”, its elements, and their relationships, which every healthy small city (as opposed to a megacity -which is actually several small cities under one government) needs to consider in order for its citizens to live a good life. I bring it up in this conversation because some communities might create an “overabundance” of amateur orchestras, or theatres, (all needing grants and sponsors) and yet have a really strong need to develop a fully professional group in each category. The cycle was my attempt to describe the evolution and relationship of the arts in a single community, from the personal and private experience and from the personal expressions of art, through the public school classes, the specialized art schools, the private teachers and private schools, the youth art groups, higher education in the arts in high school special courses, college and university courses, amateur groups, semi-professional quasi-amateur groups, small professional groups and companies, to visiting master classes, touring National and International examples of art forms, and local full-time professional companies in every art form. Under each category I indicated the “place” or venue each required, which of course becomes more demanding and expensive the more “educated” the art form. Under each place I listed some of the major skills, related tools, and supportive, well-supplied businesses the city needed to include before that particular level of art could be realized.

    Over funding might relate to an over abundance of groups or resources at one of these levels, while at the same time the cycle might show that several elements were missing entirely.

    The city might love to indulge “its own” to the exclusion of inviting in or developing itself, the more professional, experienced, well-paid, and often more venue demanding, versions of the arts. In my university town of 150,000, for example, that is the case. If I look for a venue capable of accommodating a visiting, touring symphony or ballet, theatre, or opera company, you will not find it, but the new local arena can seat 6,000 for pop shows. As a result, every generation grows up without being fully excited by the best the classical arts can do for us. Unless the parents take their children to neighbouring cities, children and youth here will never see an exciting Nutcracker, Romeo and Juliet, or Guys & Dolls. If they want advanced training in the arts, they will have to leave home (not really a problem) but they will not be able to return to their home town and try to develop the arts environment since there is no job available in any one of them to work in. Teachers and schools spend fortunes in our city to educate our children as highly as possible, but none of them can return this investment back to their own city. In addition, the community performance groups that offer stipends as pay, present themselves as professional, though they are not organized as such, and unable to thrill and move their audiences since they lack the technique and wide experience to do so.

    Many of my city’s people are turned away by the arts here and spend their arts money 300 miles away. What a waste of potential local talent and loss of revenue. Or they don’t use their entertainment money on live arts, and go to films or watch TV instead. Our city is trying very hard to attract professionals in sophisticated businesses. Our university and college teachers are well-educated and demand equally developed art. So, in my opinion, there are large arts funding gaps here, if the goal is to create a healthy and complete arts cycle in a town which has actually been asking for this for many years now. And this funding gap is there in spite of the fact that, if you look at the dollars granted and given, it might actually be on the high side.

  3. Megan Barton says:

    I appreciate Arlene’s disappointment that the discussion about oversupply didn’t go deeper — or was headed behind doors. Especially because “naming names” could have been avoided by simply having folks share their perspectives on what organzational features characterize “sustainable” groups and or otherwise justify continued investment by grant funders and other contributors. Perhaps that conversation can lead to new or expanded thinking about what we value in the arts as a society, and by individual funders, and how the collective funding field can best support those things.

    I also know that arts organizations (and those in other fields) must be honest with themselves about whether their work justifies continued philanthropic support. Are we having a meaningful impact? Are we using these contributed resources wisely and efficiently and with integrity? If not, can we make the necessary changes to do so? These are hard questions, and the answers may be excruciating or at least uncertain. But — with finite resources — we all must make choices. To pretend otherwise is folly.

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